Loss of Commission Cover
Loss of commission insurance is as essential for shipbrokers as business interruption and loss of profits insurances are to other businesses. The loss caused by, for example, the sinking of a vessel on a long term time-charter could seriously diminish a shipbroker’s income.
ITIC offers two types of loss of commission cover, the simpler being loss of commission resulting from the charterparty being terminated due to actual or constructive total loss of a vessel.
The more comprehensive cover includes loss of commission due to a charterparty being cancelled for a wide range of marine perils, such as heavy weather, fire, piracy, collision, engine breakdown and negligence of master or crew.
Cover is offered either on an individual declaration of a charter, sale or purchase, or the more popular annual cover for all fixtures concluded throughout the year. In the latter case, there is no need to make any further individual declarations as all fixtures within the limit of liability are automatically covered.
Constructive total loss commission insurance
The shipbroker who fixed the M.V. MSC NAPOLI for a period charter lost its right to commission when the ship, which was famously beached on the south coast of the UK, was declared a constructive total loss.
The shipbroker insured his commission with ITIC and the Club paid USD 500,000 to the broker - the equivalent of the balance of the commission due over the remainder of the period charter. The shipbroker received his commission and had the advantage of it being paid up front.
Wider loss of commission insurance
A ferry on a regular route suffered many deficiencies, including engine breakdowns and machinery deficiencies and was often put off hire. Ultimately the charterers applied a clause in the charterparty which allowed them to terminate the charterparty due to the number of off-hire periods. The shipbroker had taken out ITIC’s full loss of commission insurance and therefore claimed for the remaining period in which they should have received commission against the insured peril of the breakdown of the engine or equipment. The commission lost totalled USD 80,000 and was covered in full by ITIC.